Surveillance: Tariffs Make U.S. Economy Worse Off, Roubini Says

morning Donathan. Instead of a bunch of fancy n y U economics, I want to talk about somebody listening to this in Iowa or Oklahoma, or maybe it's lumber up in Montana or Washington State, John, somewhere, you know, like dairy in Wisconsin. Whatever. We got this mumbo joe umboard trade stuff, and it's everybody in suits and ties and fancy white shirts like you're wearing. Forget about it. What does that tariff mean for producers in services and goods? Not in three zip codes in New York, not in

two zip codes in Washington. Well, it means two things. One is that any farmers selling soybeans or other products to China is going to face now massive tariffs, and therefore they're starting to hurt and complain and too as a consumer, think of it. If you impose it tw tariff on five hundred billions of inputs from China, that's like tax of a hundred and twenty five billion dollar a year on the US consumer. It's a massive tax

increase hundred and twenty five billion. So it hurts the consumer, it hurts the producer, and it makes the US economy works off. It's a disaster. When the President sends China's paying that tax, is that a campaign message? Do you think the cons directly directly? Do you think the consumers understand that they are the individuals paying this Well, he's saying China is paying the tax in the same way we say that Max is going to pay for the wall.

That's nonsense, because once you impose the tax, what's gonna happen is that the price of imported goods from China the United States is gonna go up, mostly by the amount of the tax. Now could go out by less than the amount of the tax if the Chinese cut down the dollar price of their goods and there will be some impact of that, but most of the impact

of a tariff is imposed on importers. There is the U S consumers as simple as that is a hundred and twenty five billion dollars tax on the US consumer, on the U S assholes. And it's the most regressive tax of all because those consumer goods about from China that you buy wal match that are cheap goods that allow you to have per capita income rising and your present power. So is there a regressive tax or not only is the tax, but the regress sime tax is

the most exective tax of all. Translate this for John Pharaoh of the Midlands. Is the Midlands? Is that work is the lake country that's further north, that's over, that's my lake superior. But but if you look at the Middlands of England, you go back to the corn laws. Is President Trump dragging the corn laws of England Pharaoh's great great grandfather? Are you dragging the corn laws into the twenty one century? Is that all we're doing effectively

is the same thing? Is protection? Is that protection is might benefit and the margin some producers in the import computing sectors. But that's a very small number of people, but it hurts all consumers. So the same workers as consumers are worse off. And anyone was in an export producing business, their jobs, that income, their profits are gonna go down. So you're making worse off consumers and exporters for the benefit of a very small number of essentially producers.

And that would be like Lord Ferrell back in the seventeenth century. John there wasn't a Lord Frown. He was probably insistily. The cost are huge, you know. Like you know, a few years ago we imposed the taxes on tires imported by China. Was estimated that the cost for every job that was saved in the tarry industry West was a million dollar. I mean, you can just give a substitut to those workers and not impose the tax on all the consumers. So it's a tax that is totally distory.

A final question, it's an important one. The Chinese behavior hasn't changed towards trade. It needs to change. That's an overwhelm. We can census among economists that it needs to change. The objective of this administration is to get the Chinese to change. You're saying this is the wrong way. What's the right way. Well, it's the wrong way because they're

going to retaliate. They cannot lose face. You want to control the rise of the power of China, the right way is to do it the multilaterally, not just alone, but with Europe, Japan in others way of complained about China, and do it in a way that you start negotiation

and you put pressure of them. If you start unilateral tariffs, they're gonna retaliate, and yes, they will live to a much ate on goods, but they can impose massive restrictions on hundreds of billions of dollars of foreign direct investment by Apple GM and hundreds of business they've done business in China, so they're gonna hurt. They lend their currents in a weekend by eight percent, and they could even

eventually have the corruption of dumping US treasury. So that a wide variety of options, and they take the long term view. They don't have election in three months, so they can wait and play it out over the next two decades. Our nuclearruption is the joy of having you hear from Milan. And of course, with John Ferrell's love for a Simolan, we go out to segment with the A Simon fight, So you are not realists, not gonna

come back now interest of her life. That's beautiful, Thank you tell King full of months of pain, this makes up for it. I appreciate that we're gonna do a more learned view here on the financial system that the U S confronts right now in emerging market Stephanie Siegel out of Chapel Hill and the Johns Hopkins University School of Advanced International Studies, does this looking sort of broader and deeper where Rubini is looking at more of the

crisis dynamics and the actual political dynamics. How about just where are we in finance, Stephanie. Good morning Stephanie Siegal and I love your idea of first best responses. Do they need the International Monetary Fund to make first best response or is there a new em responsibility? Well, first off,

good morning, it's nice to be with you. UM. I think the point of the piece I think that you were referring to was to differentiate between countries that are facing just fundamental economic vulnerabilities and um, those countries that could potentially get swept up in a broader e M contagion and the first best response that I was referring to was first off just stronger, more fundamental policies that

address some of the economic imbalances. But then also recognizing that we're going into a period of vulnerability for e m s. We're going into a period of um of interest rate hikes and dollar strengthening, and that leaves EMS more vulnerable. Um. And so if you're in a world where financing for those em starts to dry up, UM, what are the options that those countries have? And but nique unique here? Dr seagells the idea of dollarization. That's a new word, and that I'm sure we had it

eight we had it in two thousand seven. But am I right that the dollarization, the dollar denominated effect of all this debt on EM is dramatically different this time? Um? I don't know if I would say that it's dramatically different.

So what is different this time? So we've had a decade of very low global interest rates UM that has actually encouraged a great deal of borrowing, including from non financial corporates, and a lot of that emerging market borrowing by those corporates has been in foreign currency, in dollars. So as the dollar is strengthening, it becomes that much harder for those e m s to repay those debts.

And that's that's part of the phenomenon right now that's driving some of the broader e M weakness Apart from just the pure fundamentals. Stephanie, what's the dominant channel for

contagion UM? That is an excellent question. I mean, I think you would first look at what are the real economic linkages between some of the vulnerable em so, thinking in terms of of just pure trade and those trade linkages, I think most people think that the e m s that are under the most stressed right now, that they're economic linkages to the rest of the world are are manageable.

And so then you look to financial linkages that are their banks and other investors that have exposure to the those e M s UM, and I think a lot of people feel like those UM exposures are also manageable, in part because of the cleanup that took place after the global financial crisis. UM. The third area, and this is kind of the unknown right now, is just the broader risk sentiment UM and how investors feel about the overall environment. And I think that's where you start to

get into UM. What are what are some of the unknowns right now? And and first and foremost in a lot of people's mind is where does this trade war between the US and China UM end up? And are we looking at something that would potentially be resolved quickly or are we looking at something that could be much more protracted and have much broader impacts UM beyond just the US and China, Stephanie. Investors look at those three

things that you just described. They look at those three things and they conclude that the United States will be unaffected, it will be insulated. Is that your conclusion as well? Or do you look at it differently? Um? I look at it differently in the sense that I think if this is kind of a near term phenomenon it um

it is certainly manageable. And in particular, if the US knows what it is that it's asking of China and they can actually enter into a negotiation where each side can make some progress, then then you're looking at a quicker resolution. I think where people get concerned, and I agree with this is if we're looking at a much broader trend toward um deliberalization and deglobalization, and what does that mean for the global outlook. Um, And there I

think the much bleaker story. And what's so interesting year is the overlay which we heard a little bit from Lawrence Cudlow yesterday at the Economic Club of New York, and we heard it a lot Stephanie Siegel from Nora Robini an hour ago, is the overlay of US fiscal policy. We talked about Chairman Powell is central Banker to the world. Is our fiscal deficit the fiscal impulse to the e

M world? Right? And so you're are you kind of asking what the implications are for our Absolutely at one point three one point for chronic deficit, we get some form of slowdown, we go out to one eight two trillion deficit. How does that affect Ecuador? How does that affect Indonesia? Yeah, and I think there's um. There are a couple of channels. Again. I think one this immediate fiscal impulse that we're seeing the fact that growth is much higher in the US as a result of this

fiscal stimulus. UM. On the one hand, because of those real linkages, that's actually positive for the global economy, except it also presents a very large financing need. And so in this environment where you've got higher interest rates in the US and dollar strength and an additional financing need. Are we the United States then pulling financing away from the rest of the world. UM, So that poses a risk to e M S and then a risk two

E M S UM and to ourselves. Frankly, is what happens after this kind of sugar high of fiscal stimulus wears off, And that I think is a concern for everybody. It's definitely the first concern. It's a concern that the Central Bank Governor of India race several months ago that the Treasury together with the ballet sheet roll off at the FED, which just going to suck up dollar liquidity from e M. Is that playing out already? That I

think is hard to tell. I mean, we we have already seen UM outflows from EMS UM in UH in the first half of the year. So I think you know there are a couple of drivers behind that. Is UM increased demand from the United States and specifically for US treasuries UM. Is that is that a factor playing into it? I think? So it's definitely great to cant shout with you, C S I S Deputy Director and senior fellow. So let's talk to Jane Furley joining US

sound of the Global Capital of FEORIG Exchange in London. Rabbabanks, Senior currency analyst, Jane, let's get to the big debate. It's the US dollar debate and an unloved rally through the front half of this year. What's your base case now, Jane, Well, we still think that you'd be better off holding long dollars. I mean, I think what we've probably seen is some

position adjustment. And let you mentioned that rally in the dollar has gone a long way, but there has been I know it shift perhaps and some of the factors that the market is talking about a shift perhaps and in concerns about where US growth is going to go on the back of a trade excuse me, trade wars, a new debate back growth potentially been hit there, and also some concerns about that flowing or capped inflation potential.

Also in the US, we had softer data on that front last week, So I think this is profit taking. I still think that emerging markets are going to be vulnerable in the wake of the pressure on China, and I do think that the long dollar positions will win through. But I do think right now we are seeing some position adjustment. What do you think, Jane, right now is the dominant concern for e m f X the dominant concern and where is it coming from? Most people on

the morning light this morning might point to trade. Kit Jukes is calling the trade situation Washington water torch. Just this drip drip of tariff news together with FED hikes. What do you look at. Well, I think this has been the theme all year, But I think what's different.

There's the emphasis. If you go back to the beginning of the year, though there was a lot of optimism that the trade situation would brush over, that the it would be a short run thing, there would be a compromise, and by now we've more or less a forgotten about it. But I think right now, you know, many more commentators are coming to recognize that this can really be a drawn out process. And I think that's the change, that's

what's really getting under the market skin. And I think if we look to emerging markets, well, they are obviously in the front line of a full away in market confidence. And we've seen a capital outflow from the emerging markets really from the beginning of the at least since the spring. But it wasn't until maybe the summer that this became a much broader effect, that this began to really rattle a confidence in a much bigger way. But I do think that that the trade ward thing is is very

much in the front line. We just don't know how much it's going to slow Chinese guys. We don't know how much it's going to knock onto other economies. I just looked at the eurindollar volatility surface and it's fairly symmetrical. There doesn't seem to be or one way bet. Where is the one way bet that you can play against right now? Is it weak yen and you push against that? Well? No, I think I think the end is as a really

confusing one at easter. You know, if you're looking in on the phone exchange market this year, because you've seen this sell off in emerging markets this year, and many people might be forgiven for thinking, well that means of cause the year and it's the safe haven currency, Well in that case it should be really quite strong. But I think what's happened is that the markets looked at the higher interest rates coming up we're coming through from

the Federal Reserve. It's looking at the strong growth story in the US, and actually, you know, many Japanese investors, particularly perhaps I thought, well, actually I think I'd rather put my money in the dollar, pick up a little bit of yield. And therefore you've seen the years it's not as as as strong as as many people might have expected, given the sell off an emerging market, So

interest rate differentials really coming through. I think the days when the end really benefits is when we have some sort of shock, some sort of unforeseen bad news, and we have this knee jerk back into the end. But as long as the interest rate of differentials are seen to be boosting the dollar, I think it's going to be difficult for um to see the end pick up too much ground against the US dollar. Well, Jane of right, differential as a plan into the dollar en cross, Why

is it not playing into the euro dollar cross? Because your dollars at to one seventeen. What's it doing up there with rate differentials heavily skewed in the dollars favor? Well, you're right. I mean again, if we look back into maybe the middle of August, we had you know, lows round about one thirteen, and suddenly we're back in in in in the Euro's favor again. I think there is some position adjustment here. I think the sell off in the Euro was probably a little bit too fast through

the first couple of weeks of August. But I do think that when you have a scenario whether you used to be has signaled really quite clearly that it's got no intention of hiking interest rates, at least to someone of next year. When you've got budget issues for for Italy two, I think that you might look vulnerable at these levels. What is the number one question your clients

are asking you right now? The number one question from UK customers, Irish customers are still very much about Brexit, and this of course has been the same situation for two years. It's still a huge issue for Sterling. It is, well, you know, should we be buying sterling now is there going to be a deal? Or should we be saying spelling is there going to be no deal? It's obviously

very very difficult to change that question. But yeah, John Jane has two goldfish and her desk ones called even you know, there's cold remains, it's just sitting on the fence. It just goes just and there's a cold boris Again you said those in the UK ask about Brexit. Does anyone outside the UK ever ask about Brexit? There? Yes is the answer. Yes, Perhaps were not the same sort of intensity, but you know that there's a lot of There's perhaps three different options that many investors have had.

They could buy Sterling, they corself early, or they could just remain on the sidelines, and I do suspect that many investors, if they had the option, have stayed out of it. For those that don't have the option, what's your advice to them, I think they need to try to extremely carefully and clearly. We've seen studying recover some ground over the last week and say there's a little bit more optimism that November could come through. But I think the focus needs to be on the UK government.

If there is no consensus within the UK government, there's got to be a question mark as to whether or not a trade deal is going to get through. There is of course the potential for stiling to valy hard if a deal is signed in November or whenever, but if that doesn't get through, rati factor in Parliament and Starling still looks pretty fun. Very quickly here, Jane, what are you watching within this trade war that we're in. The Chinese are responded, They say they will respond as

a September twenty day. What actually is the one perspective or item that you're looking towards. Well, I think we I think you're right. I think we need to watch what China's do. I think it's quite interesting. Also another factor to watch US corporates. We've seen some pushback from US corporates over the last few weeks, but specifically US farmers. You've go to watch the November mix terms as well that this could all be interesting. So don't think there's

one particular thing. I think this is a confluence of a lot of different factors coming together. Jane, fully, thank you so much, greatly appreciate it. With robo bank today, the chairman of the Senate Judiciary Committee, this, of course,

is the Senator Charles Grassley, Republican of Iowa. Next Monday, he has set aside time to hear from Judge Brett Kavanaugh, of course, nominated to the Supreme Court, and to also here from Christine Blaze Ford, a research psychologist in Northern California who has accused Judge Kavanaugh of sexual assault, and here to tell us a little bit more about this is our own Bloomberg expert when it comes to the Bereame Court. Kimberly, Robinson, Kimberly, thank you very much for

being with us. Can you explain what this is setting up on Monday? What exactly are we going to kind of be presented with. Well, this is a really rapidly developing story, so what we say now might change completely on Monday. But right now, Republican senators have said that they want to give Kavanaugh's accuser a form where she can really air out the complete allegations that she has against Brett Kavanaugh. But then we're also going to hear from Brett Kavanaugh so that, in his words, he can

defend his integrity. Now, the President has defended Judge Kavanaugh, correct calling him an outstanding judge and dismissing as quote ridiculous. The prospect that Brett Kavanaugh might withdraw his nomination is that correct? Well, that's true, but the White House's response has been somewhat surprising. They do say that they still support Brett Kavanaugh and that they don't intend to pull his nomination. At the same time, we saw White House advisor Kelly and Conway come out and say that this

woman's allegations must be given a full hearing um. And so it's kind of a bit of a surprise given some of the allegations that we've heard against the President himself and the tactics we've seen from the White House on those. But they are standing by Kavanaugh as of now.

I believe that that the debate of this, and you know, I give credit to Michael and Kimberly, who I thought framed Ms. Conway's intent here is the Republican calculus on women and on suburban women, the people that you know, frankly put Mr Trump over the edge to victory, uh in two thousand sixteen. From where you sit with the Supreme Court tilt, do you think that politics is just all supreme here it has nothing to do with Mr Kavanaugh or or you know, the debate at hand, and

everything to do with the election in November. Well, that's really what Brett Kavanaugh's nomination has been all about, you know, is for Democrats firing up their base, for Republicans making sure that Kavanaugh is confirmed before the mid term elections.

Um So, politics has been, you know, weighing pretty heavily on this nomination from the start, but now being in the me too moment um and having these allegations come out, of course this is going to be bigger than just the Supreme Court, Kimberly, do we know anything about how senators on the Judiciary Committee feel about this revelation and we have any update on how they might vote? Well, I think how they will vote will have to be

seen on after we have the hearing on Monday. But pretty early on, once the accuser came forward publicly, Uh, Senator Jeff Flake, who's on the Judiciary Committee, and of course they must have vote for Republicans, Um said that he was not comfortable moving forward with the hearing until they at least heard from her accuser. And I think that's really what put the thumbs on the scale Um for kind of delaying the nomination and pushing it back

a little bit. All Right, this is going to be a tricky one and that's why I give it to you, uh, not to make light of any of these accusations, but when are these accusations supposedly to have taken place? Well, you know, this is something that Republicans had pointed out very early on, is that these accusations took place while both of these individuals were in high school, both under the age of eighteen, UM, and there there was really a robust and important debate about whether or not that

is disqualifying for Supreme Court nominee. But at this point it might be a bit beside the point. And that's because Brett Kavanaugh has come out unequivocally against these allegations, saying that they don't matter. And so I think the issue now will be if you believe this woman, um, does lying about it disqualify you for a seat on the Supreme Court? And I think that is a much

easier question, um than the one about the timing. Nicely answered Kimberly Robinson, thank you for a journalistic approach there. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio